Airlines cram more of us into smaller seats every year. They charge us more for the privilege of bringing our belongings with us or picking where we sit. So talk about airlines losing money – or, more accurately, making less of it – doesn’t exactly inspire sympathy.
However, the Skift has a great rundown of one of the latest problems the airline industry is grappling with – jet fuel prices are on the rise. Does this mean flight prices are on their way up, too? Is the golden age of the flight deal ending?
The answer: Not just yet. But with oil prices rising, it’s only a matter of time before flight prices rebound for the worse.
What’s Going On?
Ready for a jaw-dropping statistic? Jet fuel prices are up almost 50 percent, and half of that increase has come in the last three months alone. Just like the prices at the gas pump, the cost of oil is jumping after years of lows. It’s at its highest point since 2014.
So why does it matter? Well, jet fuel is one of the airlines’ biggest costs. American Airlines is bracing to pay $2.3 billion more for fuel than it did last year, and only $300 million of that coming from more gallons of fuel burned.
Airlines and their investors aren’t the types to just swallow that cost. They pass it on to passengers in the form of higher fares. Back during the Great Recession, high jet fuel prices and a global downturn in tourism combined to cripple the airline industry. In 2008 alone, airlines lost a combined $5.2 billion.
Times are clearly different now. The airlines learned to be more efficient and smarter, and the stronger airlines swallowed the weaker ones. Airlines have also learned to better protect themselves from massive swings in oil prices through smart investments in the stock market.
In all, airlines are in a much better spot to weather increased costs without passing them on to consumers. The International Air Transport Association projects the airline industry will make $38.4 billion in profits in 2018. And competition between those airlines that haven’t been gobbled up or folded is so great that they’re scared to raise prices only to lose passengers to a competitor. So when will prices increase?
The resounding answer from financial analysts (who are way smarter than us) seems to be “not anytime soon.” Instead, major airlines are opting to scale back their expansion plans. Or they’re making smaller revenue adjustments like charging more for upgrades. What they’re not doing, for the time being, is increasing fares. Nor are they cutting back on what’s expected to be a banner summer for flight offerings across the U.S. And that’s good news for travelers. “It’s a good summer to be a leisure traveler,” said Samuel Engel, who heads aviation group of consulting company ICF.
At Thrifty Traveler, we see two major factors behind this great stretch of cheap airfare, both domestic and abroad. First, a long run of low oil prices has helped airlines keep their costs down. Second, the growth of low-cost airlines has put pressure on all airlines to keep their prices down.
Luckily, these low-cost airlines aren’t going anywhere. But those planes aren’t flying on their passenger’s love of cheap airfare. They have to buy fuel just like anyone.
So while it may take some time, these higher oil prices will eventually catch up with airlines. Whether that means we’ll see increasing fares, fewer routes or even more service cutbacks, we will have to wait and see.
In short: We’re not in the twilight of the flight deal era yet, but it could soon be the sunset. Of course, there are many global and political factors at play when it comes to the price of oil so only time will tell how this ultimately plays out.
Low oil prices have helped the golden age of flight deals flourish. While fares aren’t increasing yet, some of these incredible deals can only last so long as oil prices continue going up. We won’t pretend to be financial analysts, but something has to give. Either way, the Thrifty Traveler team will keep helping you find the cheapest ways to get get to your next destination.